Levy denies Downing Street rift rumours

Lord Levy's allies hit back last night at "mischievous" rumours that he was engaged in a "blame game" with Jonathan Powell, the Prime Minister's chief of staff, over the criminal investigation by police into "loans for peerages" allegations.

Labour's chief fundraiser, yesterday flew back to London from Israel after accompanying the Prime Minister as Tony Blair's Middle East envoy to face renewed questions next year by police on his role in the honours allegations.

The financier's friends were baffled by claims yesterday that Mr Powell was furious at being "dragged into the ditch" by Lord Levy in his police interviews. Lord Levy, who denies any wrong-doing, was reassured by the "nice words" from Mr Blair during the visit. "These are just mischievous rumours being put about by somebody," said one of Lord Levy's friends. "There is a political biting game going on and things are flying around everywhere."

The reports, however, indicated the bitterness caused by the police inquiry, and the efforts to escape blame. Lord Levy, who was questioned twice after being arrested, is expected to be questioned again, but the police have not contacted him yet. He is on bail, which has to be renewed shortly and it is thought he could be questioned then.

The Prime Minister also returned on a separate chartered BA flight with the inquiry still hanging over him. He could be questioned next year over the £14m in loans secured by Lord Levy to help Labour fight the last general election.

The inquiry team, led by, Metropolitan Police Assistant Commissioner John Yates, has written to several people close to the Prime Minister requesting further interviews. It is believed letters have gone to Mr Powell, Ruth Turner, the head of government relations, and John McTernan, the head of political relations, but the interviews are unlikely to take place before Christmas.

Mr Yates had told MPs that there were "gaps" in the political parties' evidence, including the government's, and "it would, of course, be regrettable ... if we had to resort to any more formal means to gather this material". That was taken to be a warning that the police Scotland Yard is prepared to threaten action for attempting to pervert the course of justice if internal memorandums or e-mails are withheld or destroyed by Downing Street.